On its face, last week’s Supreme Court ruling in Expressions Hair Design v. Schneiderman was modest. The high Court remanded a ruling of the U.S. Court of Appeals for the Second Circuit for application of the “commercial speech” doctrine to a New York law that—as interpreted—regulates how merchants communicate prices to their customers. Yet the very fact that the Court regarded the case as presenting a free speech issue at all illustrates the disturbing breadth of free speech doctrine under the Roberts Court.
New York’s Credit Card Surcharge Law
Generally speaking, merchants prefer that customers pay cash rather than using credit cards, because credit card companies charge merchants a fee (typically two to three percent of the purchase price) per transaction. When they are permitted to do so, some merchants charge customers a higher price if they pay with a credit card rather than with cash in order to pass the extra cost along. However, in New York, the law at issue in Expressions Hair Design appears to prevent them from doing so. The state law makes it a misdemeanor for a merchant to impose a “surcharge” on any purchase made by “credit card in lieu of payment by cash, check, or similar means.”
New York merchants who want to charge extra for credit card purchases understandably dislike the law, but it is not immediately apparent that the law limits their freedom of speech. Supreme Court case law has long made clear that regulations of prices are not regulations of speech that implicate the First Amendment. Why, then, did the Court treat the New York law as infringing speech?
The answer turns on how the Court majority resolved a critical question about the New York law: What counts as a forbidden “surcharge”? In particular, can a merchant avoid violating the New York law if, instead of placing a surcharge on the cash price for credit card customers, she instead characterizes the cash price as a “discount” from the credit price?
The majority in the Supreme Court, in an opinion by Chief Justice Roberts, thought that a discount for cash customers would not count as a surcharge, because that is how the federal appeals court construed the law. The appeals court in turn had relied on the fact that the New York law was modeled on a federal law (long ago repealed), and the federal law had distinguished between forbidden surcharges for credit cards and permissible discounts for cash.
Thus, according to the majority, a merchant’s compliance or non-compliance with the New York law depends entirely on how the merchant communicates prices to customers. If a merchant sells bags of pretzels for a “regular” price of $2.00 per bag but charges credit card purchasers of pretzels $2.10 per bag, that is a forbidden surcharge; however, if the same merchant sells pretzels for a “regular” price of $2.10 per bag, but charges cash customers only $2.00, that is a permissible discount. Yet, these transactions are economically identical. Accordingly, the majority concluded, the New York law is really a regulation of merchants’ speech, not of prices.
That interpretation of the New York law is not obviously correct. Although the state law was modeled on the since-repealed federal law, unlike the latter, the state law does not include a definition of “surcharge” making clear that it only limits how prices are communicated. As Justice Sotomayor (joined by Justice Alito) explained in a separate opinion, under the most straightforward reading of the New York law, it requires merchants to charge customers the same price, regardless of whether they pay in cash or by credit card. Justices Sotomayor and Alito therefore thought that instead of proceeding immediately to apply the commercial speech doctrine, on remand the federal appeals court ought to seek input from the New York courts (through a so-called certified question). Justice Breyer, also writing separately, approved this course.
Nonetheless, the five-justice majority proceeded on the assumption that the New York law operates like the repealed federal law—regulating the way prices are communicated, not the prices themselves.
The Expanding First Amendment
Even assuming that the majority in Expressions Hair Design correctly assessed how the New York law operates, its further conclusion that the law infringes free speech is questionable.
The Court treats surcharges as legally indistinguishable from discounts simply because they are economically equivalent. Yet economic equivalence does not automatically translate into legal equivalence. Sometimes the law elevates form over function, but doing so does not necessarily bespeak censorship.
Consider the 2011 case of Arizona Christian School Tuition Organization v. Winn. There the Supreme Court held that taxpayers lacked standing to challenge the grant of a tax credit as violating the Establishment Clause of the First Amendment, even though the same taxpayers would have had standing to challenge a direct payment—despite the fact that in economic terms a tax credit is indistinguishable from a direct payment. According to the peculiar logic of the Expressions Hair Design case, the Supreme Court’s own distinction between tax credits and expenditures in Arizona Christian School Tuition Organization was an effort to censor the speech of the Arizona legislature, because it disallowed a challenge that it would have allowed had the legislature chosen a different—but economically equivalent—vehicle for subsidizing private (including religious) schools. And that, to use a technical legal term, is nuts.
To be sure, the majority in Expressions Hair Design did not find that the challenged New York law violates the First Amendment. The Court simply remanded to the appeals court for the application of the commercial speech doctrine.
However, even that step is substantial. The majority did not decide whether the New York law should be judged under the deferential “reasonable relation” standard applicable to mandatory disclosure laws or the more demanding test—sometimes called intermediate scrutiny—applicable to restrictions on commercial speech. Should the appeals court apply the latter test, it may be difficult for New York to prevail. And even if the state ultimately wins in Expressions Hair Design, the very characterization of the challenged law as implicating free speech will lead to more challenges to what have hitherto largely been thought to be the sorts of economic regulation that have been mostly insulated from judicial review for the last eight decades
Seen in broader perspective, Expressions Hair Design reflects a disturbing pattern in the Supreme Court. Although the Court officially retains deferential review for laws regulating the economy, increasingly, economic regulation is vulnerable to challenge on free speech grounds. Readers who are untroubled by the potential invalidation of New York’s prohibition on surcharges for credit card use may be considerably less sanguine about other manifestations of this trend—especially the Court’s repeated invalidation of campaign finance laws on free speech grounds.
There now exists a cross-ideological consensus on the Court in favor of robust protection for freedom of speech. In many ways, that consensus protects our democracy, especially at a time when the president demonizes the press.
Still, it is possible to have too much of a good thing. The spread of free speech doctrine into the realm of economic regulation threatens the legacy of the New Deal era. Seeing the error of the prior half century, beginning in the late 1930s, justices and judges resolved no longer to use the Constitution as an excuse to substitute their views of economic policy for those of politically accountable actors. That principle remains in force, but it can be undermined by a too-expansive view of free speech. Expressions Hair Design is admittedly a small step, but it is a step down a dangerous path.